- The GBP/USD forecast remains bullish, targeting 1.3925 as the dollar loses further after the FOMC meeting.
- Despite the suspension of interest rates and Powell’s reminder of rising inflation, the dollar was unable to find buyers amid concerns about the Fed’s independence.
- Options markets reveal the highest negative level since last May for 3-month risk reversals for the British pound, indicating further upside.
The GBP/USD pair is slowly moving upward within a positive structure, targeting 1.3925. The price is oscillating between 1.3750 and 1.3850, but the momentum is shifting in favor of an upward breakout. Impulsive upward moves indicate that buyers are controlling the dips, and risk bias remains high as long as the pair remains above the mentioned support range.
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On the dollar side, the backdrop is clearly negative. The US Dollar Index (DXY) is trading near 96.00, near multi-year lows, continuing a two-week downtrend despite the Federal Reserve leaving interest rates unchanged. Furthermore, Powell stated that inflation remains above target.
Markets are looking past the hawkish tone and instead focusing on the political and institutional risks surrounding the Fed’s independence and the Trump administration’s unpredictable policy mix. This has given rise to a widespread “Goodbye America” narrative in the FX market, as investors have steadily reduced their exposure to US assets and favored alternatives, including the British pound.
Options markets confirm this shift. Sterling’s three-month risk spillovers have risen to their lowest negative level since last May, indicating a significant bias towards upside protection in the pound against the dollar.
The spot rate has already reached its highest level against the US dollar since July last year, with the dollar recording its biggest weekly decline since April. Trump’s apparent relief at the dollar’s weakness has reinforced the dollar’s selling tendency ahead of the Fed meeting.
GBP/USD Technical Forecast: Possible correction before an uptrend
GBP/USD is consolidating its gains near the 1.3850 level with the demand zone and the confluence of the 20-period moving average at 1.3750, providing strong support. However, the RSI in the overbought zone indicates a possible pullback before further upside.
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The 1.3750 level is now acting as a pivot point, and a break below it could attract more selling momentum and target the 100 period moving average near 1.3580. On the other hand, the upward trend may find temporary resistance at the highest level recorded yesterday at 1.3860, then 1.3900, and then 1.4000.
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